Florida reinsurance dependency in focus after Helene, with $5bn+ loss expected: AM Best

Despite the fact reinsurance markets have typically retrenched higher-up after increases to attachments and raised prices through the recent hard market period, after hurricane Helene the dependence of specialist Florida property insurance carriers on their reinsurers remains a focus, according to AM Best.

AM Best said Friday that it anticipates hurricane Helene will result in higher losses compared to the previous year’s Idalia, given its larger wind swathe and track.

That is now generally accepted, with early loss estimates all tending to point to higher industry losses in Florida from Helene, while Helene’s impacts further-afield into the United States mean the full loss from this storm could be much greater than Idalia drove.

While Florida’s homeowners insurance market reforms and improved underwriting results have helped carriers focused on the state to build higher surplus, while also returning to growth in premium terms, AM Best notes that the reliance on reinsurance persists.

The rating agency said, “Primary insurers underwriting property coverage will likely bear the brunt of those insured losses, given the recent trend by reinsurers to impose higher attachment points on that coverage.

“This hurricane could also be a key financial test for Florida property-catastrophe specialist writers, some of which are thinly capitalized. These specialists have been reporting higher loss ratios than the national property insurers writing coverage in Florida in each of the past five years, except for 2023.”

Chris Draghi, a director at AM Best also said that, “While there was improvement in 2023, the market remains on the front end of this upswing with sustainability yet to be proven.”

With Helene, AM Best said that it expects insured losses from the hurricane “will exceed $5 billion.”

Jason Hopper, associate director, AM Best highlighted, “Helene’s strong wind fields stretched over a much wider area, accompanied by coastal storm surge and inland flooding.”

The wind vs water question will come up through the claims process for hurricane Helene, AM Best also pointed out, so the determination of what perils caused damage and losses could be critical.

Storm surge damage appears wide-spread, while the rainfall related flood impacts in states to the north, right the way up into western North Carolina, look catastrophic from media coverage. This can both complicate the storms claims in Florida, while raising the storm total industry loss when pluvial impacts are factored in.

In addition, potential business interruption losses are another factor, for Helene’s impacts in Florida and beyond.

The rating agency also said that, “Primary insurers with higher levels of dependence on reinsurance have a greater sensitivity to changes in this pricing.”

As with every significant Florida catastrophe or weather event, reinsurance is set to respond in some cases.

While the reinsurance market has resent higher and at tighter terms in general, AM Best states that, “For insurers with a smaller level of absolute surplus, on a relative basis, retentions may be lower and reinsurance would be expected to kick in.”

The rating agency also said hurricane Helene could prove to be a test form some of the newer Citizens takeout insurers, calling them thinly capitalised, as well as the recently formed reciprocal exchange insurers in Florida.

Floridian insurers that have a property catastrophe focus are already running with higher loss ratios than nationwide, or more diversified players and hurricane Helene could be a further challenge.

While there performance has improved and they have shown growth in direct premiums written, their reinsurance programs may be tested.

“These revised programs may be further tested depending on which companies experience the most notable losses from Hurricane Helene,” AM Best said.

The rating agency also explained that “The considerably higher level of dependency among Florida carriers indicates greater sensitivity to changes in reinsurance pricing and availability.”

While unaffiliated ceded premium to policyholder surplus for concentrated Florida property cat specialists was roughly flat, despite their premium growth, in 2023. That suggests the reliance on reinsurance remains and so where the retentions are lower, these towers could be tested by Helene’s losses.

Finally, AM Best also comments on Florida’s insurance reforms, which remain relatively recently enacted and not as well tested as you might think after 2022’s hurricane Ian.

The reforms, de-risking efforts and rate increases have provided Florida’s insurers “a good base to maintain momentum,” AM Best said, but also cautioned that “we remain on the front end of the positive swing in results.”

Here, it’s important to highlight that the reinsurance and catastrophe bond market has once again been taking losses due to loss creep that is reportedly being driven by litigation trends after the aforementioned hurricane Ian of 2022.

Just in recent weeks, we’ve reported on some catastrophe bond losses flowing to investors with new litigation strategies in Florida, such as delaying of settlements, seen to be increasing the ultimate quantum of claims and driving some loss creep in insurer UNL’s.

We understand there has also been some increases to reinsurance recoveries in the traditional market that have also been attributed to changes to the litigation trends that were previously seen before the reforms, which our sources tell us appear designed to try and inflate claims in new ways that get around some of the legislative reform measures.

With another hurricane loss event in Florida, it will be interesting to see whether hurricane Helene becomes yet another Florida insurance catastrophe that exhibits a longer-tail than some might have anticipated.

Also read:

– Hurricane Helene insured wind/surge property loss in Florida/Georgia initially said $3bn – $5bn: CoreLogic.
– Losses to per-occurrence cat bonds from hurricane Helene currently seen as unlikely: Twelve Capital.
– Hurricane Helene landfall at Cat 4 140mph winds, Tampa Bay sees historic surge flooding.
– Hurricane Helene industry loss seen $3bn to $6bn if Tampa avoided: Gallagher Re.
– Minimal to no cat bond impact expected from hurricane Helene if track unchanged: Plenum.